Pepco wants $126.8 million increase in Maryland electric distribution rates

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Pepco filed an application with the Maryland Public Service Commission requesting an increase of about $126.8 million in its Maryland distribution rates and an authorized rate of return on equity of 10.6 percent, based on a test year ending on Dec. 31, 2015.

At current rates, the company's adjusted ROE is 2.26 percent, which is below its authorized rate of ROE as set by the PSC. Pepco added that it is now seeking an increase in distribution rates because its revenue growth has not kept pace with the growth in operating costs and rate base, and that disparity will only increase as Pepco continues its investments to enhance the reliability of the distribution system.

The impact of the requested rate increase on the typical residential standard offer service customer using 1,000 kWh per month would be $15.80 per month, or 53 cents per day in increased electric rates, Pepco said.

In an April 19 statement, Pepco said that even if the new rates are approved, its customers' monthly bills are down 9 percent from where they were five years ago because of dropping energy prices. Also, many customers continue to take advantage of Pepco's smart energy management programs to save on their bills, the company said.

Pepco also said that during the past two years, it invested $327 million into improving reliability of the electric distribution system – and fully $890 million in reliability and other programs since 2012.

“We recognize that rate increases can be difficult for our customers, and that's why we provide ways to help customers save on their energy bills, whether that's through smart meter technology, energy efficiency programs or direct financial assistance to help those most in need,” Dave Velazquez, president and CEO of Pepco Holdings, said in the statement. “With some simple changes in how they use energy in their homes, customers can significantly lower their bills and save money.”

Pepco said that its delivery rates in Maryland have not changed since 2014. The request for an increase, which the company said is unrelated to Pepco Holdings' recent merger with Exelon, and would have been made regardless of the merger, will be used to recover costs from the reliability and technology investments that the company made before the merger.

Pepco's application follows the request by Atlantic City Electric – now also an Exelon company – for the New Jersey Board of Public Utilities' approval of an annual increase in the company's current retail base rates for electric service of about $78.9 million.

In its application, Pepco said that separate from the requested adjustment to base rates, it is proposing to continue its grid resiliency charge, which was initially approved in another PSC case, Case No. 9311. Noting that it proposes to accelerate improvement to priority feeders and install single phase reclosing fuse technology, Pepco said that it is requesting $15.8 million a year for two years for a total of $31.6 million. The impact of the proposed GRC on a typical residential SOS customer using 1,000 kWh per month will be 20 cents per month, Pepco said.

The company said that its revised rate schedules are submitted with a proposed effective date of May 19.

In direct testimony filed with the application, Kevin McGowan, vice president, Regulatory Policy & Strategy of Pepco Holdings, said that the application for an increase in base distribution rates is predominately driven by the company's request for recovery of its advanced metering infrastructure (AMI) investments, continued infrastructure investments to improve reliability and customer service, and the results of the company's most recent depreciation filing.

As part of the request, McGowan said that Pepco is seeking recovery of $97.2 million of capital investments that it has made in AMI meters, communication equipment and other assets through rate base. The company is also requesting recovery of its $60.9 million regulatory asset that was established to defer various costs associated with its AMI system.

McGowan further noted that Pepco is requesting approval to pursue $31.6 million of new incremental investments through the Grid Resiliency Program, consistent with the program already approved in Case No. 9311, and with a slight expansion.

He said that the original $24 million of investments in feeder improvements completed in the initial program were focused on reducing outage events during all weather conditions and were successful. The company requests a continuation of the program with new incremental investments in feeder improvements and in recloser technology to further improve and accelerate reliability performance during normal weather and storm conditions, he said.

Discussing the program's status, McGowan said that the company executed the program over 2014 and 2015, which accelerated the hardening of 24 distribution feeders. The work on those feeders was fully completed and placed in service by the end of last year, he said. The 24 feeders completed in the initial program resulted in system average interruption frequency index (SAIFI) improvement of 73 percent, and system average interruption duration index (SAIDI) improvement of 97 percent on those feeders, including all outage events, he said.

Pepco is proposing an extension of the program to perform work on 24 additional feeders at a capital cost of $24 million, and install 1,000 single phase reclosing devices at a capital cost of $7.6 million, for a total Grid Resiliency Program size of $31.6 million, he said.

The work, which will be done in 2017 and 2018, will involve replacing fuses on overhead lines with electronic fuses that are capable of reclosing and restoring customers for events that would only cause a momentary outage. McGowan also noted that the company is requesting that the PSC extend the program under the same process and cost recovery methodology as approved in Case No. 9311.

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